United Cannabis Corp. (fka CNABQ)

[Dropping knowledge]

Once again. S1 is not considered toxic financing. A convertible note is toxic because the lender can convert some of the note and sell quickly. This drives the stock price down and gives them a lower conversion price on the next conversion. Hence the term death spiral. These notes usually carry between 30-45% discount to market which gives the lender plenty of room to drive the price down while staying "in the money" on the sales. Example. 100k note. 1$ starting share price. Lender converts 20k at a 45%discount and receives shares for .55$ Approx 36000 shares. Let's say they drive the price down to .75 ( they usually go off lowest trade). Now they convert another 20000$. This time the same dollar amount conversion takes 60000 shares and again and again.... that's toxic debt.
S1 financing is different. It is a registered offering of free trading shares. Because they are free trading , the lender has less risk and can give a better deal to the companie. The company chooses when to take the cash ( toxic is 144 stock becoming aged after 6 months) Usually between a 15-25% discount. Also the entire put ( ask) is covered in stock all at once. The lender can still sell quickly but they don't have the same discount. Therefore they can't drive the price as low and stay "in the money".